By Adam Levine
Tech Trader first began discussing the looming memory chip shortage back in December, as one more side effect of the booming market for artificial intelligence.
"Next year," we warned, "we're likely to hear a lot of management commentary on how memory shortages are increasing costs and depressing sales."
The day of reckoning is upon us. Memory prices for PCs, smartphones, and gaming consoles are spiking and manufacturers have to adjust, with consumers bearing the brunt of the inflation.
Demand for the types of memory and storage chips in AI servers is off the charts, and the three big manufacturers -- Micron Technology, SK Hynix, and Samsung Electronics -- don't have significant new manufacturing coming on-line until the middle of next year. These companies are doing whatever they can to maximize this market, the hottest they've ever seen. All of this year's supply is spoken for, and 2027 order books are getting close to full. Full speed ahead.
Left in the wake are device makers. One of Nvidia's coming Vera Rubin AI servers essentially uses the memory equivalent of 14,500 MacBook Neos. While big buyers like Apple can use their muscle to get supply and manage expenses, companies down the line have to be flexible, opportunistic, and willing to raise prices.
This past week, my colleague Angela Palumbo reported on the devastating effects that the memory shortage is having on the Android smartphone market, especially in the low-price tier. Market research firm IDC reported that the average selling price of phones was up $100 from last year to $550. Unit sales are expected to decline by 14% in 2026, the fastest drop ever, and IDC now expects further declines in 2027.
"For consumers, it means the era of ultracheap smartphones is over," IDC's Nabila Popal said in the report. "For vendors, it means only those that can adapt their strategies to this new cost environment and sustain demand at elevated price points will survive."
We're seeing this in PCs, too. This past week, HP Inc. reported its fiscal second-quarter earnings and its PC segment did nicely, with 13% sales growth and an improved profit margin. The company acknowledged that some demand was pulled forward to the first half of the year as customers anticipate higher prices.
The first challenge for a company of HP's size is maintaining access to memory, regardless of price. Executives sound confident that they'll be helped by deep relationships with suppliers. Ultimately, the company has had to be nimble in a tough environment.
One move was "product reconfiguration and qualifying lower-cost components," as put by chief financial officer Karen Parkhill on the earnings call. This is essentially "shrinkflation," like when a potato chip manufacturer keeps prices steady but puts fewer chips in the bag.
In this case, HP also raised prices, maximized the value of the inventory it already had, and tried to push demand to higher-margin products. Every little bit counts, because the PC segment carries a slim 5% operating margin, which can easily turn into a loss.
More flexibility will be needed, according to HP. "We expect this trend to continue in the second half of 2026, with cost increasing in fiscal Q3 and Q4," interim CEO Bruce Broussard said on the call.
The company knows it will take a hit on demand. HP is expecting total PC unit sales to decline by high-teens percentage points. Thanks to its mitigation efforts -- and a strong first half of the fiscal year -- the company still expects annual revenue growth in the PC segment.
Despite the earnings beat, HP shares declined 1.9% the following day.
Just after the market digested HP's earnings, Dell Technologies reported its first-quarter earnings. Lost among the excitement over its server business -- with sales up 181% from last year -- was a strong showing from the PC segment. Like at HP, the company saw accelerating revenue growth and improved margins.
Now that servers are a much bigger business at Dell, most of the earnings release and call revolved around that. But the company did reveal that, like HP, it raised PC prices and gained market share in the premium segment to make the excellent quarter happen. Like HP, it also observed a pull-forward of demand.
So far, the most obvious impact of the memory shortage has been in the world of gaming consoles, partly because the makers of the devices buy less memory than HP and Dell and get pushed down the priority list of customers. In March, Sony Group raised prices on its PlayStation 5 consoles by $100 to $150; Nintendo followed in May with a $50 bump for its Switch 2.
But no one is having more trouble than Valve, a privately-owned game studio that also runs the most popular PC game store, Steam. It also makes a Switch-like hand-held console called the Steam Deck. After having stocking issues in some regions earlier this year, Steam Deck is back on sale, with a big change in the form of 40%-plus price bump. The high-end Steam Deck went from $649 to $949, while an entry-level model went up by $240.
Valve had no weight to throw around and had to pay up, or not have anything to sell. And this is only the beginning.
Write to Adam Levine at adam.levine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 29, 2026 16:46 ET (20:46 GMT)
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